In a very positive decision for Ontario employers, the Ontario Superior Court of Justice recently held that employers can legally require employees to forfeit unvested restricted stock units (RSUs) immediately upon their dismissal under the terms of an equity plan (at least where the RSUs are not settled in cash).
In Wigdor v. Facebook Canada Ltd., the court held that a wrongfully dismissed employee was not entitled to damages for RSUs that he forfeited which would have vested during the 10-month reasonable notice period. This is because the court found that the employer’s equity plan did not violate the Employment Standards Act, 2000 (the “ESA”) by requiring him to immediately forfeit all unvested RSUs prior to the end of the statutory notice period. As a result, the former employee was not entitled to over a million dollars in unvested RSUs.
Background
Mr. Wigdor commenced employment with Facebook Canada Ltd. (“Facebook”) as Director of Research Science in September 2020, and he was entitled to a base salary of over $250,000 and various other benefits under the terms of his employment contract.
Additionally, Mr. Wigdor was granted RSUs on an ongoing basis under the terms of two separate RSU agreements—a 2020 Agreement and a 2021-2023 Agreement. Both agreements stated that Mr. Wigdor would forfeit all unvested RSUs “forthwith” if his employment terminated “for any reason”. The 2020 Agreement further stated that no RSUs would vest during “any notice period”, including any statutory notice period. On the other hand, the 2021-2023 Agreement stated that all RSUs would be forfeited prior to “any notice period” unless applicable legislation explicitly required otherwise.
Facebook Canada ultimately dismissed Mr. Wigdor without cause in December 2023, which resulted in him forfeiting more than a million dollars’ worth of RSUs. Consequently, Mr. Wigdor filed an application against Facebook claiming that he was wrongfully dismissed and claimed that he was entitled to damages for the forfeited RSUs that would have vested during the reasonable notice period.
Mr. Wigdor argued that the forfeiture clauses in the RSU agreements violated the ESA by requiring him to forfeit the unvested RSUs prior to the end of the statutory notice period. In particular, he argued that this violated section 60 of the ESA, which requires employers to “maintain all terms and conditions of employment during the statutory notice period”. Further, he argued that the forfeiture clauses also violated the ESA by requiring him to forfeit the unvested RSUs if his employment was terminated “for any reason”, because this could include Facebook terminating his employment as a reprisal or for other reasons prohibited by the ESA.
The Court’s Decision
Although the court found that Mr. Wigdor had been wrongfully dismissed, it held that the forfeiture clauses in the RSU agreements were legally enforceable and did not violate the ESA, such that he was not entitled to damages for the RSUs that would have vested during the 10-month notice period.
In reaching this conclusion, the court held that s. 61 of the ESA sets out employers’ responsibilities during the statutory notice period where the employee is provided pay in lieu of notice (i.e., termination pay), whereas s. 60 sets out employers’ responsibilities during the statutory notice period where an employee is provided advance working notice. Given that Mr. Wigdor was dismissed with pay in lieu of notice, the court found that the requirements of s. 61 applied, rather than the requirements of s. 60.
Although s. 60 does prohibit employers from altering any “term or condition of employment”, s. 61 does not. Rather s. 61 requires employers to: (i) “continue to make whatever benefit plan contributions” required to “maintain [the employee’s] benefits” for the statutory notice period; and (ii) provide the employee with termination pay equal to their “regular wages” for the statutory notice period.
Crucially, the court held that “benefits” did not include the RSUs in this context because the requirement is for employers to make “benefits plan contributions” (and the vesting of RSUs does not involve making benefits plan contributions). Similarly, the court held that RSUs do not constitute “wages” because “wages” are defined by the ESA as “monetary remuneration”, payments required under the ESA, and certain prescribed allowances. Presumably, the court found that RSUs were not “monetary” in the sense that stock shares are units of ownership in a company rather than monetary payments.
Finally, the court also held that the forfeiture clauses in the RSU agreements did not violate the ESA by requiring Mr. Wigdor to forfeit the RSUs when his employment was terminated “for any reason”, despite that section 74 of the ESA prohibits dismissing employees as a reprisal for exercising their statutory rights. This is because the court found that these clauses should not be treated in the same way as clauses in an employment contract, given that they were contained in separate RSU agreements.
As a result, the court found that Mr. Wigdor was not entitled to any damages for the loss of more than one million dollars’ worth of RSUs which he forfeited upon his dismissal, including those that would have vested during the common law reasonable notice period.
The Bottom Line
Overall, Wigdor is a very positive decision for employers that use equity plans for incentivizing good performance and talent retention, as they can substantially limit their equity-related liability in relation to dismissals with properly drafted RSU plans.
However, it is crucial to note that requiring employees to forfeit unvested RSUs prior to the end of the statutory notice period may still violate the ESA where the RSUs are “settled in cash” (i.e., where the employees receive a cash payment equal to the value of the shares once they vest, rather than actual shares). This is because RSUs which are settled in cash would likely constitute “monetary remuneration” and “wages” for the purposes of the ESA. Accordingly, employers should carefully consider this risk prior to implementing equity incentive plans where RSUs are settled in cash, as this may greatly increase their termination-related liabilities.
If you require assistance with minimizing your business’ potential liability when ending employment relationships, please do not hesitate to contact us for expert legal advice and guidance.
